How We’re Using Real Estate to Pay Off Debt and Reach Financial Independence

Hey everyone! Every once in a while I like to profile M$M readers and see what they're up to in life (and financially of course). It's always so interesting to see how different everyone's journey is, and I've always felt like the M$M crew is ultra-diverse. Some of you are paying off student loan debt, working on increasing your income, side hustling, or investing like crazy.

Heck…some of you are doing all of that stuff at the same time haha. It's been so awesome for me to watch and tag along with all of you.

So today, I'm interviewing Juan! If you're in the M$M private FB group, there's a good chance you've seen Juan dropping knowledge bombs on everything from real estate to retiring early. He and his wife and crushing it right now, and have managed to pay off over $200k of debt while investing in rental properties(!!!!!).

I don't invest in real estate (yet), but eventually I will in some capacity, so it's always nice to see how someone else is doing it.

Just FYI – if you have a cool financial story and want to be interviewed for the site – just shoot me an email. 🙂

Enjoy! ~ M$M

1. Tell us about how much debt you had at the beginning of your pay-off journey and how much you’re down to now. Where did it all come from?

Our debt stood at $650K when we first started focusing on debt repayment in May 2016. We’re currently at $450K. Around 45% of the debt at the time was from our rental properties in FL, about 40% from our primary residence, and the remaining 15% from our cars, student loans, and other miscellaneous debt.

2. How did you get started in real estate investing?

Back in 2010, both my parents and my wife’s parents lost their homes because of the real estate crash. Fortunately, the place where they lived was a more recent purchase, and not their first home (which they both had kept). Each family ended up moving back to their old home. However, my wife and I both had been able to keep our jobs during the time, and even though we didn’t make much, we had some savings and a good-enough credit score.

My in-laws are realtors, and always kept talking about what they would do then (property prices were at the lowest at the time), so we decided to do what they wish they could do. The first house we bought, we paid less than $50k for it (half of it was savings/401K loan and the other half was a loan from my parents).

3. What’s the best tip you can give readers that are interested in real estate investing?

Obviously, the real estate market has changed a lot since we first started buying rental property. However, the best tip I can think of is to find “value” investments. Find the properties that nobody wants, the ugliest house in the neighborhood, the property where most people wouldn’t see themselves living.

There’s a much lower demand for these properties because they require a lot of work and most people want to be somewhere that’s move-in ready with all the upgrades.

Also, surround yourself with a team that you can always reach out to (property managers, electricians, HVAC professionals, plumber, and probably most important a friendly banker that knows you by name and is interested in doing lots of business with you)

4. Can you tell us what you and your wife do for a living other than your rental side hustle?

We’re both business majors. My wife is an accountant and works for a company in the energy industry. I am a manager at a healthcare company.

5. What opened your eyes and made you want to start attacking the debt?

In 2014, we moved to GA from FL. I had just gotten a brand new promotion/raise and felt on top of the world. Two years later, we had bought a house for us to live in (same situation as my advice on one of the previous questions – butt-ugly interior from the 1970s, and no upgrades, and had been on the market for a few months).

We got a great deal and cash flowed all the renovations. During this time, we started to track our expenses and balance sheet religiously every month. Once we saw how much debt we really had at the time, we decided to really focus on paying it off as soon as possible.

6. How have you been able to pay off around $200,000 of debt in only 20 months? What’s been the biggest sacrifice you’ve made over this period?

Now that we’re tracking all our expenses on a monthly basis, we’ve been able to cut down on some discretionary expenses (downgraded my car, canceled cable, shopped around for insurance). However, I’m not a big fan of cutting expenses, so I’ve focused a lot on increasing my income.

I’ve been able to more than double my income from a handful of years back and kept our lifestyle at the level we were then. We use a zero-based budget, so every single penny that’s not being used for our lifestyle goes towards paying off debt.

7. You mentioned the Avalanche method for reducing debt. Can you explain the difference for new readers that might not know?

The avalanche method focuses on prioritizing the repayment of the debt with the highest interest rate (instead of the lowest balance like the snowball method). I know financial gurus like Dave Ramsey prefers the snowball method because of the psychological “win” you get paying off smaller debts faster, but since my wife and I are so numbers-focused, we know that using the avalanche method will save us interest in the long-run

8. With the end goal for you being FIRE, how old will you and your wife be? What do you plan on doing when you reach FIRE?

We’re probably at FI technically right now. If we both were to lose our jobs today, the income from our rentals is more than enough to cover all our obligations. However, I don’t want to pull the trigger until we’re debt free in a couple of years (except our primary home mortgage). At that time, we’ll probably sell our house, and the profit will be a 2-3 years emergency fund (unless we see more opportunities to grow our rental portfolio). We’ll reach the point of FIRE by the time we’re 34 and 33.

Our current plan is to travel the world as much as possible. We have plans to live in Spain and South America for a few months. Once we’re ready to come back, we plan on investing our time learning new skills and helping people reach their financial goals.

9. How do your friends and loved ones feel about your concept of FIRE and methods of getting there? Any tips for dealing with folks that try to push back on your beliefs?

We have a group of friends that are very FI driven. They have been exposed to the concepts and are working tirelessly to reach FI. Some of our other friends are not really interested, so FIRE is not really a topic of conversation with them. Most of our loved ones are very impressed with our journey and cheer us on our goals, while others have more of a “YOLO” mentality and don’t really share our enthusiasm.

As far as tips, I always say that the numbers speak for themselves, as do the results. We don’t try to convince anyone to join the movement (unless they show interest). I’m a firm believer in live and let live.

10. Last but not least, what’s the most important money advice you have for us?

The single most important thing you can do is to track your expenses. It’s incredible how much you learn by understanding where your money is going every month.

About Millennial Money Man

Bobby Hoyt is a former band director who paid off $40,000 of student loan debt in 18 months on his teaching salary and then left his job to run Millennial Money Man full-time. He helps other Millennials earn more through side hustles, save more through budgeting tools and apps, and pay off debt. He is a personal finance expert who has been seen on Forbes, Reuters, MarketWatch, CNBC, International Business Times, Business Insider, US News, Yahoo Finance, and many other personal finance and entrepreneurship media outlets.

Comments

Sean

Timing is everything. Being the first one to bite at an undervalued property or buying a fair market property during the right real estate market, will give you more leverage in the future. Oh yeah, location is important too 🙂

Most importantly find the right mentor, one who has been there done that, early in my RL business I thought I could read books and figure it out, bad mistake lost money in the begainning, once I started reaching out to a mentor things changed quickly and the profits rolled in. Find someone who has been there done that and will help you along when you have questions.

I’m not a real estate investor, nor anywhere close to FI so take this advice with a grain of salt…

Growing up in a trades centric town (lot of my friends work in trades) and having worked a lot on side jobs to help them I have found one thing to be absolutely paramount to investing/building/buying in real estate…

Have a good team of subcontractors! (this is mentioned in the above article)

Find subs that are going to work on your house in a timely manner, that answer their phone, and that treat your place like their own. These subs are often booked out a couple of weeks in advance but that is how you know they are good (at least in my area, ymmv).

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